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It’s an odd thing to say that growth killed a company. But chasing the tech giants off a cliff has claimed more than a few casualties.
The genetic testing company 23andMe (ME) provides the latest tragic example of profit postponement. Revenue wish casting is probably the more fitting concept. The brand’s bankruptcy and CEO exit this week make clear, however, that theirs wasn’t just a sales problem — although that was definitely part of what led to insolvency proceedings.
If some books should have stayed essays, which should have been left as tweets, then 23andMe is the subscription company that should have never gone public and explored a different path. But there are some lessons from the company’s demise.
A one-time user is not really a user, which is why tech companies use metrics like Daily or Monthly Active Users instead of “this guy gave us his DNA three years ago and hasn’t logged on since we told him his ancestors came from Italy.” Clearly, the genetic results that more than 15 million customers received from 23andMe were definitive in a way that didn’t lend itself to recurring revenue. Sending in saliva kits for most people was a one-and-done relationship with the company. The occasional buyer problem has struck other direct-to-consumer brands, like the onetime stand-out mattress maker Casper, which was yanked off the public markets less than a year after its splashy IPO. And people need their DNA tested even fewer times than they need to buy a new mattress.
When you only need to buy a product once, or occasionally, subscriptions can keep cash flowing in — if you can provide value. A big if. Think of Apple’s services business (streaming, music, fitness, data storage) as a strong example, or of Peloton (streaming fitness classes) as a rockier one. But 23andMe struggled to convert its test-kit customers into subscribers to its premium membership service, which offered personalized health reports and deeper ancestry search tools. Not everything can or should be a subscription business. When Costco does it, people create lifestyle subcultures. But when the maker of the Snoo, the internet-connected bassinet, tries to do it, there’s a public outcry over bait-and-switch upselling. As a standalone product, 23andMe was vulnerable. But perhaps as part of a bundle with retailers, gyms, pharmacies, or doctors, it would have offered a more attractive proposition.
